Spain has legal requirement for its residents to make an overseas assets declaration, notifying the tax authorities of worldwide assets that they own or control.
Until relatively recently, failure to make an overseas assets declaration, or submission of an inaccurate one, could result in extremely costly penalties. Unreported overseas assets that were later discovered by the authorities, would be treated as undeclared income on which tax should have been paid.
The legislation, (LEY 7/2012, de 29 octubre, de prevención y lucha contra el fraude fiscal), was passed in Spain in 2012. It was aimed at deliberate high level tax evaders, and the fines and penalties could add up to more than 150% of the undeclared or incorrectly declared asset value.
In January 2022, the European Court of Justice passed it’s ruling agreeing with the European Commission, that the penalties for failing to properly disclose overseas assets are excessive and contrary to EU statutes and principles.
The three judges ruled that the excessive sanctions for incorrect or late compliance are disproportionate and discriminatory. Adding that the penalties may deter businesses and individuals from investing or moving across borders in the EU single market, thus interfering in key founding principles of the EU, the four freedoms.
As the ruling was binding, Spain had to take steps to comply. Where previously the late filing penalty was the greater of a minimum of €10,000, or €5,000 per undeclared asset, this is now a fee of €150 or €20 per asset. The fine for incorrect or missing information, is a minimum of €300 and will vary depending on the deemed infraction.
The tax office can now only review or investigate overseas assets declarations going back 4 years, and if you had assets abroad, and you can show that they originated in years outside this, you cannot be taxed or penalized for undeclared income.
The EU agree with the principle of the law, so putting aside the EU ruling regarding penalties and sanctions, the declaration of overseas assets continues to be mandatory, for all residents in Spain.
Making an Overseas Assets Declaration
Modelo 720
An overseas assets declaration is made by completing a form known as ‘Modelo 720‘. The deadline for submitting the form is the 31st of March, and generally speaking the declaration only needs to be made once, as subsequent declarations are only necessary if assets have been acquired, or disposed of, or if existing declared assets have increased in value above a given amount.
Modelo 721
Modelo 721 is a new declaration of crypto currencies held on overseas exchanges. It arrived in 2023 through two regulations: Royal Decree 249/2023, de 4 april, and Orden HFP/886/2023, de 26 Julio, which approves the “Informative declaration on virtual currencies located abroad”.
The declaration requirement began in 2024 in reference to the year 2023.
Whilst this overseas assets reporting requirement might seem intrusive, it is in reality only the result of what was a small move by the authorities, in their steps to counter the country’s rampant tax evasion.